Tuesday, March 27, 2012

MA Cost of Energy: Making the Problem Worse (again)

Posited: by maintaining the fiction that incentives for renewable energy can be a central component of a strategy to get soaring energy costs under control, the people in charge of energy policy in Massachusetts just keep making the cost problem worse.

Latest example: A headline in the Boston Globe business section reads, "Mass. Senate bill would cap electricity rate hikes." Sounds promising. Unfortunately, the article below the headline describes a piece of legislation that will almost certainly further exacerbate our economy-killing energy cost problem.

Oh, the bill is being sold by its backers in the Senate as a cost control measure. The window dressing that allows them to sell that characterization to uncritical observers (like, say, Boston Globe business reporters) is a supposed new cap on electricity rate increases, and "more regular scrutiny from regulators" of rates. Which - again - might sound promising in the abstract...

Except that the new cap on annual rate increases only kicks in at 10%. An increase of 9.95% over last year might hit you pretty hard in the wallet, but it wouldn't trigger the cap. And if a utility wants to increase its rates by more than 10% it will still be able to do it, so long as it spreads the increase over two years.

Oh, and just by the by, "[t]he rate-limit would apply to the utilities’ distribution costs of delivering electricity, not the purchase price of the underlying power." Why is that important? Because as everyone who pays any attention at all to energy policy in Massachusetts knows, the regulatory authority of the state was just used to bruising effect to force a reluctant utility (NSTAR) to purchase "the underlying power" - from Cape Wind - at a much-inflated price (an unfortunate event that might also tend to call into question the practical value of the increased regulatory oversight promised in the Senate bill).

So on closer examination the "rate cap" put front and center in the public argument for the pending Senate energy bill is significantly less than meets the eye. Now let's get to the parts of the bill that will almost certainly make our cost problems worse.

In addition to imposing the ephemeral "cap" on rate increases, the bill would also double the amount of electricity that public utilities in Massachusetts are required to purchase from renewable sources. That's right - double. But don't worry, advocates insist, the bill also requires long-terms purchase contracts for such power to be subject to competitive bidding.

Which would  be great... except that power generated by renewable sources isn't more expensive because of a lack of competition in the marketplace. It is more expensive because it's just generally more expensive. It will be wonderful if/when technology advances to the point that the cost of renewably-generated energy is competitive with traditionally-sourced energy. But we aren't nearly there yet. [Related: Falling Out of Love With Cape Wind?] If passed, this bill will double the amount of higher-priced renewable energy that our utilities are required to purchase, a mandate that cannot fail to result in sharp price increases to consumers (though less than 10% a year!).

But wait, it gets much, much worse still. Here are some more details on the bill from the State House News Service (via the Herald):
In the case of a “significant shortfall of renewable generation,” the bill would also authorize the state to centrally procure renewable energy, and, if necessary, the transmission capacity to deliver the electricity.
That seemingly-innocuous little provision would pre-solve for future Cape Winds the profound marketability problems that the first Cape Wind experienced, and relieve the Department of Public Utilities of the need ever again to go through the kind of overt regulatory skull-cracking exercise by which we just saw the Patrick Administration force Cape Wind power down our throats. If despite the doubled procurement mandate no healthy market for expensive renewable power exists, why, the state will just step in and manufacture one.


There's more (same State House News article):
Environment Massachusetts said tripling the net metering cap to 3 percent for private energy consumers and 6 percent for government agencies will allow more residents, municipalities and businesses to install small-scale solar and other technologies by shortening the time frame to earn back the initial investment through savings and rebates.
Essentially, homeowners and businesses that embrace renewables will be able to sell three times the amount of excess power generated on-site to the grid at retail, rather than wholesale prices. Supporters say net metering has contributed to installed solar electricity in Massachusetts increasing by 24 times the amount that existed in 2008.
Let that sink in. "Homeowners and businesses that embrace renewables" will be able to sell power "to the grid" (meaning back into the system) "at retail rather than wholesale prices." Pop quiz: who is more likely to install a solar array on his roof: a well-heeled professional out in a tony suburb, or a workaday Joe toiling to make ends meet? Question 2: who do you think will ultimately bear the cost of that "retail priced" energy bought back by utilities (who buy all of their other power at lower wholesale prices) from those well-heeled suburban dwellers? The answer to both questions is that workaday Joe toiling to make ends meet. This provision would create incentives for private installation of solar facilities by allowing the owners of those facilities to profit from the increased energy costs imposed on the rest of the market.

Which, it goes without saying, will have the inevitable net effect of - surprise! - increasing the overall cost of energy in Massachusetts.

Unfortunately, it is clear from the statements emanating from Beacon Hill in support of the Senate legislation that the people pushing it are not only aware of its likely impact on costs, they are fine with it. They are playing the long game. Final excerpt from that SHNS article:
State Sen. Benjamin Downing on Monday said the state can’t afford to sacrifice its long-term renewable energy goals for immediate cost reductions, calling for a “right balance” even as some questions remain about how increased renewable energy requirements will affect electricity prices.
“I don’t think we can choose between renewables and low cost. I think there’s a way to do cost effective renewables and if we delay the transition to clean energy it will only cost more in the long run, so it’s not a matter of if we’re going to promote clean energy in the Commonwealth. It’s a matter of how,” Downing told reporters at a press conference.
That's pretty clear stuff. Despite widespread recognition of (and copious lip-service paid to) the very immediate problem of the Commonwealth's high energy costs, we "can't afford to sacrifice [our] long-term renewable energy goals for immediate cost reductions."  Certain cost increases now are just the price to be paid for speculative cost reductions somewhere down the line.

That is a perfectly fine policy position to take, much as I might disagree with it. But one cannot start from that proposition and then argue with a straight face that the legislation being pushed through the state Senate this week is primarily about cost reduction. Like every single energy initiative that has come out of Beacon Hill in the past six years, it is all about the mythical "transition to clean energy" that our policy makers see shining out there on the distant horizon.

Meanwhile here in the economically-challenged present we continue to lose jobs due to our high and increasing cost of energy, and public officials loudly bemoan the problem... while struggling mightily to make it worse.

1 comment:

  1. So this legislation would help well-to-do professionals at the expense of the working man...someone call the Occupods, we got ourselves a 99% v 1% bill happening in MA! Now if only they actually read informative articles.

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